The IRS is digging up property-transfer records in many states and checking to see if corresponding gift-tax returns have been filed.
Making a gift of property to heirs has become far more popular since housing values began declining in 2006, because lower values reduce the tax consequences to the giver and the heirs stand to enjoy any future appreciation of the property.
A gift-tax return must be filed for any gift valued at more than the annual $13,000 gift-tax exclusion. But that doesn’t necessarily mean that taxes must be paid. Taxpayers who give more than the gift-tax exclusion can avoid the 35% gift tax by tapping the one-time estate-tax exemption, which is much higher.
For nine years through last year, you could use a total of $1 million of estate-tax exemptions for gift-giving.
For this year and next year, the exemption is $5 million or $10 million for couples. Once the exemption is used up, you can give as much as $13,000 to as many individuals as you like each year ($26,000 for a couple) free of gift tax.
So for anyone who gave away property valued at more than $1 million in recent years and didn’t file a gift-tax return, the IRS may come looking to collect penalties and interest on unpaid taxes.
Warning to the Wealthy: An IRS Audit Is More Likely – Barrons.com